Organizational Culture, Innovation, and Competitive Performance: A Multilevel Dynamic Model

We develop a dynamic evolutionary model of innovation culture and its organizational effects at three levels. At the frontline level, informal bottom-up innovation ideas are driven by unplanned interactions governed by cultural norms, as frontline employees sort themselves into idea generator or implementor behaviors. Management cannot directly control innovation interactions and thus culture, but it can imperfectly nudge it by influencing a sharing norm at the second level. At the third level, the culture influences the innovation performance and productivity of the firm and is thus relevant for the organization’s competitiveness. This modeling approach disentangles how top-down strategy interacts with implicit frontline dynamics of cultural evolution, in the context of innovation. Unguided culture does not lead to maximum firm performance. Management guidance may or may not improve performance, and industry competition may select higher-performing cultures, which then spread through the industry under some circumstances. We characterize under which conditions management has a strong influence on culture and performance and under which conditions performance is driven more by forces outside of management’s control. This paper was accepted by Alfonso Gambardella, business strategy. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2024.05087 .